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Tax policy under a hung parliament

Tax policy under a hung parliament

As I write, it appears that we are headed for a Hung Parliament as no party has achieved an overall majority in yesterday’s election.

Many business people have tax policy high up on the shopping list when it comes to casting their vote in a general election. So, as there has been, in effect, no result, does that mean that there will be no change in tax policies?

In the very short term, that will be the case. All taxes as reported in the recent Budget will still be the same. However, in the next few weeks and months this will be subject to change.

There will now commence the horse-trading and side-deals between politicians and their parties that comes with the territory where no party has power. Each party will now need to start discussions with any other party that they feel they can ‘do business with’ in order to form the coalition government that will form policy going forward.

On the basis that the Conservatives and Labour will not be working together, it will be down to each of those parties trying to do deals with the Liberal Democrats. Picture the scene …….. in any one of the 20 or so bars in the Houses of Parliament, party officials will be haggling over a bottle of claret. ‘ If we could agree to work with you, you would need to support our tax policy on ………. You scratch my back and I’ll scratch yours.’

This is not really the way to develop coherent tax policies to encourage business growth.

For instance, the Lib Dems have been proposing increasing the capital gains tax rates up to 50%. For most gains currently, they are taxed at either 10% or 18%. Bringing in this sort of policy could be very damaging to contractors who have been considering closing their businesses and taking a capital repayment.

It is the uncertainty of things that is also disturbing. In the UK, coalition governments rarely last long and another election could be called later this year. That could then herald more changes in the direction of tax policies.

Gloomy stuff, I know, but it does look like we are headed into a bit of a tunnel. Let’s hope there is some light at the end of it.

John Mumford is the Accounting Director of Carrington Accountancy
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: Psycho mice tow the line (left side) by RobertFrancis

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